SAN JOSE — The administrator of the city’s retirement fund for non-public safety employees overpaid a dozen retirees, some up to tens of thousands of dollars over the last two decades.

But instead of asking them for the money back, the board that oversees the fund is going after another source: the city of San Jose. City leaders, however, are fighting back, insisting taxpayers shouldn’t pick up the tab on the retirement system’s $500,000 “mistake.”

The legal battle is the latest dispute over pensions in San Jose, just weeks after voters approved a measure to settle costly legal troubles over Measure B, a 2012 ballot measure that trimmed employee retirement benefits.

The city’s non-public safety employees’ retirement group filed a lawsuit Nov. 17 demanding San Jose pay $882,007 for “overpayments” the system made to the dozen retirees, as well as interest. Annual retirement benefits to public employees are subject to limits set by the Internal Revenue Service, but those amounts were exceeded for 12 employees over the last 20 years.

Records requested by this news organization show one retiree, Wayne Tanda, who oversaw the Department of Transportation, was paid a total of $216,405 above the IRS limits on top of his $133,151 annual retirement since he left the city in 2002 after 31 years.

“We were never overpaid. We made our contributions — this is money that we’ve earned,” Tanda said Monday. “It wasn’t until 12 years after I retired they informed me that the fund they were using had a limit on it. It hit me like a ton of bricks. I couldn’t believe it. I thought they were kidding.”

Another retiree, Joseph Bass, who worked in Neighborhood Services, got $172,397 above the IRS cap in addition to his $135,099 annual retirement. A message left for Bass was not immediately returned. The remaining 10 retirees received from $417 to $22,000 in overpayments.

The incorrect payments were overlooked despite annual financial audits conducted by an outside firm, said Roberto Peña, the director of San Jose Retirement Services.

“It is our responsibility to monitor that. Clearly some of them fell through the cracks,” Peña said. “And we now have implemented new controls to make sure this doesn’t happen again.”

Under IRS law, trust funds are obligated to recover money paid in error along with interest.

The retirement board had the option of collecting the money from the 12 overpaid retirees. But the board instead voted unanimously to go after the plan sponsor — San Jose — for the money.

“The board felt this wasn’t a mistake of the members,” Peña said. “Quite honestly we made a mistake and didn’t have the right controls in place to make sure we catch every member that went over the limit.”

The limits set by the IRS require that employees who retire at age 55 aren’t paid more than $140,000 a year and those who retire at age 62 can’t receive more than $210,000 a year.

In its lawsuit, the Federated City Employees’ Retirement System, which represents 8,500 current and former city employees, estimated the overpayments totaled $500,000 and is demanding reimbursement from the city, plus more than $300,000 in interest.

Critics say other cities and counties have set up alternative funds to cover benefits that exceeded the IRS cap, but San Jose didn’t.

City Attorney Rick Doyle said Monday the overpayments are “mistakes of the plan” — not the city — and it’s not San Jose’s responsibility to pay it back, especially since the city already paid its portion of benefits to the 12 employees.

“The buck stops with them,” Doyle said of the retirement plan. “We’ve already paid this bill once and now they’re coming after the taxpayers to pay again for their mistake. We’re looking after the taxpayers — someone has to be, because the retirement board certainly doesn’t care about the taxpayer.”

Doyle added that the retirement board has insurance to cover errors like this. But the lawsuit claims that wasn’t an option because the insurance only covered claims against the system — not its own mistakes.

The lawsuit isn’t the only legal trouble brewing for San Jose. About 25 city employees whose benefits were cut to comply with the IRS limits — including 11 who were overpaid — are threatening to sue the city in a separate action. They want the city to create a separate fund to reinstate their full benefits.

“We want San Jose to live up to its promise,” said Robert Bezemek, an Oakland-based attorney representing the retirees. “They worked hard for a long time — 30 years or more — to earn these benefits. It’s not like San Jose can’t afford it. It’s a matter of fulfilling their promise.”

Ramona Giwargis is the San Jose City Hall reporter at The Mercury News. After stints in Eureka, Salinas and Merced, Giwargis returned to San Jose to cover local government and politics for her hometown newspaper. Giwargis won numerous awards for investigative journalism and is a graduate of San Jose State University.

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